Turkey: Rights of Minority Shareholders in Joint Stock Companies

The "minority shareholder" is defined under Article 411 of the Turkish Commercial Code No. 6102 ("TCC") as the shareholders represent at least 10% of the share capital in joint stock companies and 5% in public joint stock companies. Rights of the minority shareholders in joint stock companies under the TCC are as follows:

I. The Right to Request the Dismissal of the Auditor and the Appointment of a New Auditor

Pursuant to Article 399 of the TCC, an auditor shall be elected by the general assembly in joint stock companies for each fiscal year and the appointment shall be made before the end of the fiscal year in which the auditor will perform his/her duty. The circumstances that allow for the dismissal of the auditor are set out and prescribed in a limited manner in the said article and the auditor cannot be dismissed for any other reasons. Upon the request of the minority shareholders, the commercial court of first instance that has jurisdiction over the registered address of the joint stock company can appoint another auditor, if a fair cause for dismissal can be established (e.g., especially if doubts arise that the auditor is acting subjectively), after hearing the concerned parties and the elected auditor. In order for the minority shareholders to initiate such a lawsuit, they must have voted against the election of the auditor at the general assembly, have had their opposing votes recorded in the general assembly meeting minutes, and have been shareholders for at least 3 months prior to the date of the general assembly at which the election was made.

2. The Right to Request the Issuance of Share Certificates

There are two types of shares that can be issued by joint stock companies: (1) registered shares and (2) bearer shares. The type of the shares shall be determined in the articles of association. Share certificates representing bearer shares shall be issued and delivered to the shareholders within the first 3 months following the date that shares are fully paid-in. Bearer share certificates cannot be issued for shares that are not paid in full. With regard to share certificates representing registered shares, there is no obligation to issue registered share certificates under the TCC. However, if requested to do so by the minority shareholders, the company is obliged to issue registered share certificates and to deliver those to the shareholders in accordance with Article 486 of the TCC.

3. The Right to Request the Dissolution of the Company

Article 531 of the TCC allows minority shareholders to request the dissolution of the joint stock company for legitimate reasons by initiating a lawsuit before the commercial court of first instance that has jurisdiction over the registered address of the company. Article 531 does not address the question of which circumstances may be deemed as legitimate and justified reasons. The legitimacy of such reasons is evaluated by the courts on a case-by-case basis.

4. The Right of Representation in the Board of Directors

Pursuant to Article 360 of the TCC, provided that it is stated in the articles of association, certain share groups, shareholders comprising a certain group in terms of their qualities and nature, and minority shareholders can be granted the right to be represented in the board of directors. The number of board members who represent these groups cannot exceed half of the total number of board members in public joint stock companies.

5. The Right to Request a Special Auditor

Pursuant to Article 438 of the TCC, minority shareholders have the right to request a specific audit to clarify certain issues whenever necessary, by exercising their shareholders' rights in the general assembly, although such an audit may not be included in the meeting's agenda, and provided that the right to demand information or examination right has already been exercised by the shareholders. If such request is rejected by the general assembly, then the minority shareholders may request the appointment of a special auditor from the commercial court of first instance that has jurisdiction over the registered address of the company, in accordance with Article 439 of the TCC.

6. The Request for the Convention of a General Assembly Meeting and Addition of an Item to the Meeting Agenda

Pursuant to Article 411 of the TCC, minority shareholders may, via notary public and by stating the reason, request that a general assembly be convened, or demand addition of a subject that they wish to be discussed to the agenda of a meeting that has already been announced. In case the request is rejected or not approved by the board of directors within 7 business days, the minority shareholders may apply to the commercial court of first instance that has jurisdiction over the registered address of the company. In the event that the court deems that the convention of the general assembly or the inclusion of an agenda item is necessary, the court shall appoint a trustee responsible for calling the general assembly for a meeting and determining the agenda.

7. The Adjournment of the Deliberations concerning the Financial Tables

Pursuant to Article 420 of the TCC, upon the request of the minority shareholders, deliberations concerning the financial tables and subjects related to the financial tables are automatically adjourned for 1 month.

8. The Rights with Respect to Release

Pursuant to Article 559 of the TCC, members of the board of directors, auditors, and founding shareholders cannot be released from the liabilities with respect to the incorporation and capital increases of the company unless 4 years have passed since the incorporation, or the capital increase in question. Following the lapse of such four-year period, a release may only be certified upon the approval of the general assembly. However, a release cannot be granted if the minority shareholders vote against such release.

9. The Rights against the Dominant Shareholder (or "Controlling Company")

Pursuant to Article 202 of the TCC, a controlling company is not allowed to exercise its control in a way that would cause the controlled company to incur losses. In particular, the controlling company cannot direct the controlled company to carry out legal transactions, such as the transfer of businesses, assets, funds, staff, receivables and debt; to decrease or transfer its profit; to restrict its assets with rights in-rem or personal rights; to undertake liabilities such as providing surety, guarantee, and bill of guarantee; to make payments; to adopt decisions or take measures that negatively affect its efficiency and business activities without reasonable grounds; to refrain from taking measures that will hinder its development. Such steps might be allowed only if any loss incurred due to such acts or decisions is compensated within that financial year, or a right to claim the "equivalent value" is granted to the controlled company no later than the end of that financial year, with a specific explanation of how and when this loss will be recovered. If compensation has not been made within the activity year, or if a "right of equivalent claim" has not been granted within the due period, each shareholder of the controlled company can claim that the loss incurred by the controlled company be compensated by the controlling company and its board members, who caused the loss.

Shareholders who have cast negative votes against the general assembly resolution and had them recorded in the general assembly minutes in connection with transactions such as mergers, divisions, conversions, terminations, issuance of securities and important amendments to articles of association initiated through application of control and without any clear reasonable grounds concerning the controlled company, or who have objected in writing to the board resolution on the same and similar subjects have the following rights: they can request from the court that (i) their damages be compensated by the controlling company, or (ii) their shares in the controlled company be purchased at stock exchange value, if applicable, or at a value determined in accordance with generally accepted methods.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in June 2017. A link to the full Legal Insight Quarterly may be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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